January Topic of the Month: Setting an Attainable Budget to Start 2022
If you followed the advice on our last blog of 2021, you might be thinking you’re in a strong financial position to start the year off: you might have maximized your contributions, reviewed your financial plan, and talked with your advisor about how you can set stronger financial goals. The next step, though, is to build a 2022 budget to make sure you can achieve those goals. While maybe you’ve made New Year’s Resolutions in the past to save more money, a budget is the best way to make that resolution come to fruition.
Begin your budget by writing down your total income every month after taxes. From this number, work backward and subtract your outgoing money. If you are paid more than once per month, you may choose to budget based on a pay period.
Begin with the payments you make every month: mortgage/rent, utilities, any insurances you pay, and so forth. If you haven’t automated those payments yet, you might consider doing so now so that they are automatically withdrawn from your bank account on a specific date. If a payee doesn’t accept automatic deposits, some banks offer free automated check mailing; you might inquire about this possibility.
Then, think about the money you spend external to bills each month: gas for your car, groceries, household supplies, etc. Do your best to estimate the amount spent per month and then add a buffer so your estimate is higher than you’d expect.
Now decide what to do with the remainder. What you do here is going to differ drastically based on your life situation and financial needs. Deciding how to use your money is best done in conversation with a financial advisor, but typically it will involve some variety of adding to savings accounts, retirement accounts, and/or investment accounts. If you have outstanding debt, it might include trying to pay that down at a faster rate. This part is tailored to you and your needs, and there’s no right or wrong answer.
After you’ve budgeted, you want to make sure you’re sticking to it—if you aren’t, it’s time to adjust. We suggest you track how closely you adhered to your budget each month and tweak it for the following month. At this point, we like to ask the question “do you need to change your budget or change your habits?” Perhaps every quarter, or at the midpoint of the year, you might consult your budget to do a larger overhaul if necessary.
As you build your budget, we’re here to help you align it to your specific financial goals. Call Orsinger Investment Group, Inc. at (724)588-9067 to schedule an appointment for support in your budgeting process!